Present: Keenan, Koontz, Kinser, Lemons, Goodwyn, Millette,
JJ., and Stephenson, S.J.
REMORA INVESTMENTS, L.L.C.
Record No. 080313
OPINION BY JUSTICE DONALD W. LEMONS
February 27, 2009
DAVID L. ORR
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Randy I. Bellows, Judge
In this appeal, we consider whether a member of a limited
liability company (“L.L.C.”) may bring a direct action against
the manager of that L.L.C. for an alleged breach of fiduciary
duty to the individual member or if such an action must be
brought derivatively on behalf of the L.L.C.
I. Facts and Proceedings Below
O.A.L.L.C. (“O.A.”) was formed in 2000 as a Virginia
limited liability company with only two members -- David L.
Orr (“Orr”) and Remora Investments, L.L.C. (“Remora”) – each
with a fifty percent ownership interest in O.A.
Orr has been
engaged in commercial real estate development in the
Washington, D.C. Metropolitan area for twenty years.
is a limited liability company.
The majority interest in
Remora is held by trusts for the children of Richard L. Adams,
Jr. (“Adams”), and Adams owns 5% and is the manager.
purpose of O.A. was “(a) to purchase, own, develop, manage,
invest in and sell or otherwise dispose of the real property
and (b) to do any other lawful thing necessary, appropriate or
advisable in connection with these activities.”
designated the manager of O.A. under O.A.’s operating
Beaumeade 1A Investment L.L.C. (“Beaumeade”) “was a
Delaware limited liability company” whose members were O.A.
and VA Value L.L.C., with each owning a 50% interest.
the manager of Beaumeade as well.
The purpose of Beaumeade
was to purchase, own, manage, invest in and sell or otherwise
dispose of certain real property.
Adams, on behalf of Remora,
testified that his understanding of Beaumeade’s purpose was
“to acquire a vacant lot, build a building on it, lease it,
then sell it.”
Beaumeade acquired a parcel of real property in Loudoun
County, Virginia, known as 21785 Filigree Court, Ashburn,
This property was Beaumeade’s only asset.
opened an investment account in the name of O.A. in early
On October 15, 2003 Beaumeade’s property was
sold for $2,779,970.99 and the proceeds were deposited in an
account for Beaumeade.
Orr directed that the portion of
proceeds payable to O.A. from the sale of Beaumeade’s
property, $1,384,166.55, be deposited in its entirety by wire
transfer from Beaumeade to O.A.’s investment account on
October 16, 2003.
These funds from the sale of the Beaumeade
property were not invested in any manner other than deposit in
the investment account.
Remora filed its first action against Orr and O.A. on
January 21, 2004 seeking, among various other remedies, that
O.A. be dissolved and O.A.’s assets be distributed.
court sustained a demurrer on the first bill of complaint but
gave Remora leave to amend. Remora then filed a first amended
bill of complaint and thereafter requested leave to amend,
which the trial court permitted.
A second amended bill of
complaint was then filed requesting dissolution of O.A. and
distribution of O.A.’s assets.
Remora also sought an
accounting of O.A. and judgment against Orr for breach of
fiduciary duties that Remora claimed Orr owed to it and O.A.
While the Beaumeade Property was sold on October 15, 2003
and the proceeds invested the next day, Orr did not make a
disbursement of O.A.’s assets to either himself or Remora
until September 26, 2005 and then again October 4, 2005.
testified that he knew at least by October of 2003 that
Remora, through demand by Adams, wanted its share of the O.A.
funds disbursed to it.
The trial court referred the matter to a commissioner in
The commissioner found that Remora had standing to
bring the action directly and that it did not have to bring
suit against Orr derivatively on behalf of O.A.
commissioner also found that the “sale of the Beaumeade
property, the only asset of O.A., was an event of dissolution
and disbursement should have taken place.”
commissioner found “that Orr breached his fiduciary duty as
manager of O.A. and wrongfully withheld disbursement, and is
therefore liable in damages to Remora.”
report was filed, and Orr filed exceptions to the
After hearing oral argument and upon consideration of the
parties’ briefs, the trial court did not accept the
commissioner’s findings and conclusions.
trial court held “that a claim for breach of fiduciary duty
cannot be brought directly by one member of an L.L.C. against
another member or manager, and thus Remora did not have
standing to bring this cause of action directly against Orr.”
We awarded Remora an appeal upon four assignments of error:
The trial court erred in holding that a manager of a
limited liability company owes no fiduciary duty to
the members of the company.
The trial court erred in holding that a member of a
limited liability company has no direct right of
action against the manager for breach of fiduciary
The trial court erred in holding that a claim by a
member of a limited liability company against the
manager for breach of fiduciary duty may only be
brought as a derivative action.
The trial court erred in holding that when an event
of dissolution of the limited liability company has
occurred and performance by the manager of the
fiduciary duty breached would result in dissolution
of the company, a member may only bring an action
against the manager for breach of fiduciary duty
derivatively even though the wrong was directed at
the member and only the member and not the company
would benefit from recovery on the claim.
II. Standard of Review
The question whether a member or manager of an L.L.C. may
be sued directly by a member rather than pursuing a derivative
action on behalf of the L.L.C. is a question of law.
trial court owes no deference to a commissioner’s conclusions
Orgain v. Butler, 255 Va. 129, 132, 496 S.E.2d 433,
In this appeal, the dispositive issues are
reviewed de novo because the question whether a member or
manager of an L.L.C. may be sued directly by a member instead
of by a derivative action on behalf of the entity is an issue
of law, see Westgate at Williamsburg Condo. Ass’n, Inc. v.
Philip Richardson Co., 270 Va. 566, 574, 621 S.E.2d 114, 117
(2005), and this Court has the same opportunity as the trial
court to read and interpret the operating agreement of the
Pocahontas Mining LLC v. CNX Gas Co., LLC, 276 Va.
346, 352, 666 S.E.2d 527, 531 (2008); Video Zone, Inc. v. KF&F
Properties, L.C., 267 Va. 621, 625, 594 S.E.2d 921, 923
(2004); Pyramid Dev., L.L.C. v. D&J Assocs., 262 Va. 750, 754,
553 S.E.2d 725, 727 (2001).
Remora argues that under proper principles of statutory
interpretation, analogous corporate law, and Tooley v.
Donaldson, Lufkin, & Jenrette, Inc., 845 A.2d 1031 (Del.
2004), it had standing to bring a direct cause of action
against Orr for breach of fiduciary duties.
III. Standing and Fiduciary Duties
In Gowin v. Granite Depot, LLC, 272 Va. 246, 254, 634
S.E.2d 714, 719 (2006), we stated that a “limited liability
company is an entity that, like a corporation, shields its
members from personal liability based on actions of the
In Flippo v. CSC Associates III, L.L.C., 262 Va. 48,
56-57, 547 S.E.2d 216, 221 (2001), we stated that a manager of
an L.L.C. is “like a corporate director” and analogized the
fiduciary duties of managers in an L.L.C. to the fiduciary
duties of corporate directors.
In Mission Residential, LLC v.
Triple Net Properties, LLC, 275 Va. 157, 161, 654 S.E.2d 888,
891 (2008), we stated: “[l]ike a corporation, a limited
liability company is a legal entity entirely separate and
distinct from the shareholders or members who compose it.”
Code § 13.1-1024.1, titled “General standards of conduct
for a manager,” which is part of Virginia’s Limited Liability
Company Act and Code § 13.1-690, titled “General standards of
conduct for director,” found in Virginia’s Stock Corporation
Act have almost identical language.
Code § 13.1-1024.1(A)
reads: “A manager shall discharge his or its duties as a
manager in accordance with the manager’s good faith business
judgment of the best interests of the limited liability
Code § 13.1-690 reads: “A director shall discharge
his duties as a director, including his duties as a member of
a committee, in accordance with his good faith business
judgment of the best interests of the corporation.”
in either of these code provisions imposes duties between
members of an L.L.C., between members and managers of an
L.L.C., between stockholders of a corporation, or between
individual shareholders and officers and directors.
contrast, general partnership law in Virginia provides that “a
partner owes to the partnership and the other partners . . .
the duty of loyalty and the duty of care.”
Code § 50-
73.102(A) (emphasis added).
The trial court held that “a claim for breach of
fiduciary duty cannot be brought directly by one member of an
L.L.C. against another member or manager, and thus Remora did
not have standing to bring this cause of action directly
The trial court noted that if the General
Assembly had wanted to impose such fiduciary duties it would
have done so explicitly, as it did in the partnership statute.
We agree with the trial court.
B. Analogous Corporate Law
Remora contends that our decisions in Adelman v. Conotti
Corp., 215 Va. 782, 213 S.E.2d 774 (1975) and Glass v. Glass,
228 Va. 39, 321 S.E.2d 69 (1984), by analogous application of
corporate law, establish that managers of L.L.C.s owe its
members fiduciary duties.
However, Remora’s reliance on these
two cases is misplaced.
As the United States District Court correctly observed in
its interpretation of Adelman,
the Virginia common law duty owed to the
shareholders . . . by its directors was not a
fiduciary duty inuring to each shareholder in his
individual dealings with [the corporation], but
was rather a duty attaching only to dealings
between the officers and directors of [the
corporation] and the shareholders as a class.
American General Ins. Co. v. Equitable General Corp., 493 F.
Later in Glass we held that
Supp. 721, 741 (E.D. Va. 1980).
“[c]orporate officers and directors have a fiduciary duty in
their dealings with shareholders and must exercise good faith
in such dealings.”
228 Va. at 47, 321 S.E.2d at 74.
the fiduciary duty referred to in Glass was to shareholders as
a class and not individually.
In Simmons v. Miller, 261 Va. 561, 544 S.E.2d 666 (2001),
we held that corporate shareholders cannot bring individual,
direct suits against officers or directors for breach of
fiduciary duty, but instead shareholders must seek their
remedy derivatively on behalf of the corporation.
544 S.E.2d at 675.
Id. at 576,
In Simmons we rejected a “closely held
corporation exception” to the general rule requiring
derivative suits and noted that requiring a derivative suit
prevents multiplicity of lawsuits by
shareholders. A recovery by the corporation
protects all shareholders as well as creditors.
Finally, . . . consistent application of
commercial rules promotes predictability. If
shareholders and the corporation desire to vary
commercial rules by contract, they are free to do
Our holdings in Adelman, Glass and Simmons do not support
Remora’s contention that we have previously approved direct
causes of action by individual shareholders against directors
and should likewise permit such actions by members of an
L.L.C. against a manager.
Additionally, Remora argues that we should adopt the rule
established by the Delaware Supreme Court in Tooley, providing
determining whether a stockholder’s claim is
derivative or direct . . . must turn solely on
the following questions: (1) who suffered the
alleged harm (the corporation or the suing
stockholders, individually); and (2) who would
receive benefit of any recovery or other remedy
(the corporation or the stockholders,
845 A.2d at 1033.
In determining the “nature of the wrong and
to whom the relief should go” the Delaware Supreme Court held
a direct action may be maintained by a stockholder if the
claimed direct injury is “independent of any alleged injury to
the corporation” and the stockholder demonstrates that “the
duty breached was owed to the stockholder and that he or she
can prevail without showing an injury to the corporation.”
Id. at 1039.
We need not decide whether to adopt the analysis employed
by the Delaware Supreme Court in Tooley, but observe that even
under such an approach, Remora would not prevail.
pleadings, Remora seeks damages for misapplication of the
proceeds from the sale of the Beaumeade property, challenges
the manner of Orr’s investment of the proceeds, and seeks
All of these alleged injuries, if
sustained, are injuries to O.A.
alleged injuries are not unique to it.
While Orr is the
manager, he is also a member. Based upon the allegations
recited above, any injury sustained by Remora was also
sustained by Orr.
C. Operating Agreement
O.A.’s operating agreement stated that Orr was the
manager and listed numerous “Rights, Powers and Duties of the
However, O.A.’s operating agreement did not
establish fiduciary duties between members or between a member
and a manager. As we noted in the corporate context in
Simmons, “[i]f shareholders and the corporation desire to vary
commercial rules by contract, they are free to do so.”
Simmons, 261 Va. at 576, 544 S.E.2d at 675.
can also be included in an L.L.C.’s operating agreement.
Nothing in the statutory provisions relating to L.L.C.s
provide for fiduciary duties between members of an L.L.C. or
between a member and a manager of an L.L.C.
law relating to corporations does not provide such duties.
O.A.’s operating agreement does not provide such duties.
Accordingly, the trial court did not err in dismissing
Remora’s complaint because it did not have standing to bring a
direct action in this case.